ETFs For Retirement Protection

Blue Sky Asset Management is known for its focus on risk management solutions targeted at clients who are at or near retirement. The firm has put its expertise in drawdown protection in a family of ETFs offered under the brand QuantX.

Blue Sky’s Keys Tinney, managing partner, and David Varadi, head of research, say the motivation behind their products was simple: Retirement investors can’t afford drawdowns. Losses at that stage in the game come with serious consequences—having to spend less in retirement, having to work longer or having to go back to work entirely to make up for the loss. Tinney and Varadi tell us how they work.

Keys Tinney

Managing Partner

Blue Sky

Dave Varadi

Head of Research

Blue Sky

ETF.com: What's unique about the way you approach risk in a portfolio?

Keys Tinney: Blue Sky rose out of another RIA that served clients that were at or around retirement. We were the portfolio arm of that business. Those clients can't afford to have a substantial drawdown—and that’s where our thinking comes from.

We wanted to offer some sort of systematic way of managing risk in the portfolio that went beyond typical diversification. We found that using different concepts like momentum, trend-following, volatility as an indication of where risk is in the markets, etc., were all great for that goal.

We believe in the prototypical diversification, but we’re adding an overlay that says, “If the waters get too choppy, we’re going to de-risk the portfolio. And when the waters smooth out, we’ll put more chips back on the table.”

ETF.com: You have four risk-managed ETFs. Are they four different guardrails that belong in the same portfolio? Or do you pick and choose? Let’s talk application.

Tinney: We look at these as colors on a color palette. We want to give an advisor who has global equity exposure in, say, SPY [SPDR S&P 500 ETF Trust] and EFA [iShares MSCI EAFE ETF], the same exposure, but with guardrails on the downside. QXGG, the growth portfolio, effectively gives global equity exposure with guardrails on it.

You could do the same thing with multi-asset income, or with the total return, which is more the go-anywhere portfolio. And the real return gives you commodity exposure. You can also blend them. If you have SPY, EFA, EEM [iShares MSCI Emerging Markets ETF], you can add one of our ETFs for protection, depending on the environment.